The birth of a child changes your life in more ways than you might have imagined, especially when it comes to your finances. Not only will your expenses change, but your savings plan and your future overall financial goals will likely also swift. If you are lost on how to make this transition for your new addition, here are some tips to get you started.
Expand Your Emergency Fund
Again, how much you spend each month on your obligations will change now that you have a little person to care for. From childcare expenses to formula — you will have to spend more. As a general rule, it is safe to have at least 3 months of expenses saved for an emergency. However, since you have a child, you might want to get closer to 6 months. If you already have money saved, make sure the amount reflects your new monthly expenses. If not, work aggressively to save extra to ensure you are protected for an emergency.
Start Saving for Education
Ideally, it is best to start saving for your child's college education from the moment they are born. The earlier you save, the more money you can set aside, and the more interest you can earn on the money, which will ultimately mean that you will have more money set aside once your child is ready to further their education. Make sure you do not just put the money in a standard savings account. Starting a 529-plan is a better option since it comes with added tax advantages. A 529-plan can also be used for K-12 education expenses, so if you are considering private education, it can also be helpful.
Update Your Will
Ensure your will reflects your child's needs. In addition to declaring a plan for your assets an updated will can also provide directions for how your child will be cared for in the event something happens to you and your spouse. Within the will, you can include everything from who will raise your child to what religious practices the child will follow (or not follow) to how your assets will be passed on to the child, such as through a trust. Without a will, none of these decisions will be based on your wishes.
Remember, these ideas are just the beginning. It is most important that you craft a financial plan that is tailored to your needs. To ensure you are on target, it is always helpful to sit down with a financial planning service for additional assistance.Share